Why Warren Buffett Refuses to Play the Short-Selling Game — And You Should Know Why

When GameStop stock exploded from $20 to over $400, short-sellers got crushed. But Warren Buffett saw this coming decades ago. The Berkshire Hathaway CEO has spent half a century watching markets, and his take on short-selling is crystal clear: it’s a sucker’s game.

The Math Doesn’t Work

Here’s what most people miss about doing short positions. When you buy a stock at $20, your worst-case loss is $20. When you short at $20, theoretically your loss has no ceiling. As Buffett bluntly put it: “Your loss can be infinite.”

That’s not poetry. That’s math. And it’s why the risk-reward skews horribly against short-sellers. Berkshire Hathaway won’t touch it because you simply can’t size bets appropriately when downside is unlimited. “You can’t make big money shorting because the risk of big losses means you can’t make big bets,” Buffett explained at the 2001 shareholder meeting.

It Destroys People’s Wealth

Buffett doesn’t mince words about the human cost. “It’s ruined a lot of people,” he said plainly. “You can go broke doing it.” He’s not speaking theoretically — he’s lived it. Back in 1954, Buffett got caught short on a stock. “I wouldn’t have been wrong over 10 years, but I was very wrong after 10 weeks, which was the relevant period. My net worth was evaporating.”

That experience stuck with him. Being right on thesis but wrong on timing is a special kind of painful when you’re short. Your conviction means nothing when the stock keeps climbing.

Bubbles Play on Human Nature

The seductive part? Obvious bubbles seem like perfect shorting opportunities. But Buffett warns that logic fails in bubble markets. “A bubble plays on human nature. Nobody knows when it’s going to pop, or how high it will go before it pops,” he said in 2002.

This is the psychology trap. Investors see an irrational price spike and think “I’ll just short it until reality catches up.” What they don’t account for: the bubble might keep inflating while they bleed cash on borrowed shares. By the time they’re proven right, they’re bankrupt.

Buffett’s Playful Ultimatum

Interestingly, Buffett doesn’t view short-selling as immoral — just economically dumb. In fact, he’d welcome short-sellers targeting Berkshire Hathaway. “I would lend them stock and earn extra income. They’re a certain future buyer,” he said with a smirk.

He’s even deployed this strategy at other companies. When a major brokerage wanted to borrow USG stock to short, Berkshire charged premium rates and forced holding periods to maximize the lending income. The math works better on the lending side than the betting side.

Why Professionals Avoid It

Vice-Chairman Charlie Munger framed it differently: “Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.”

That’s behavioral wisdom. Money matters, sure. But so does your sanity. Why expose yourself to unlimited loss potential, margin calls, and the psychological warfare of watching a shorted position moon when you could simply own quality assets and compound wealth?

The GameStop squeeze was just the latest reminder that Buffett figured out decades ago: short-selling isn’t investing. It’s expensive gambling disguised as market skepticism.